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Suppose we want to chart the profit or loss of a covered call. The stock is...

Suppose we want to chart the profit or loss of a covered call. The stock is purchased at $75 a share. The call premium is $3.45 and has a strike price of $80.

At a stock price of $50 a share, what are our total gains or losses per share with this strategy?

A.

Loss of $25
B.

Loss of $21.55
C.

Gain of $3.45
D.

Gain of $9.45
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Answer #1

As Strike Price > Stock Price on Maturity, Call option will not be executed by Holder.

Net Loss = [ Sale Price - Purchase Price + Premium Received ]

= [ $ 50 - $ 75 + $ 3.45 ]

= - $ 21.55

Option B is correct.

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